Boom and Bust? Understanding the Power Plant Construction Cycle

 

Rising energy demand could spur investment in waves, but a fixed capacity charge might flatten the curve.

Construction cycles occur in many industries. Examples include automobile manufacturing, metallic commodities, agricultural commodities, and real estate—some of which may differ in fundamental ways from the electric industry. Yet that does not make the power business immune from boom and bust.

The differences that separate these other industries from the power business may arise from their long supply chains or their ability to store products in inventory prior to delivery. The real estate industry, however, appears similar to electricity in many respects. Investors consult market data in deciding whether to construct new buildings, just as a power producer might do. And in real estate, delays in completing construction have given rise to cycles that date all the way back to the early 1800s (See bibliography, Hoyt 1933, DiPasquale 1996, Sterman 2000).